Unbundling is not the answer for Eskom
A DECISION to unbundle always comes as a result of a huge and vertically integrated company operating poorly as opposed to smaller, specialised companies producing the same product.
When you weigh up companies such as the giant power utility Eskom or SA Airways, it’s economies of scale, the integration, the reputation that come up short.
Minimising dependency on others is the reason electricity supply is a government monopoly.
Unfortunately, once companies become vertically integrated, with multiple focuses in their value chain, they begin to forget just which business they are in and what is their core task.
It would make more sense to unbundle Eskom into two, operation and transmission. Transmission would give Eskom clarity on what assets it has and what it needs to keep transmitting electricity.
The real question is whether unbundling is the adequate response to Eskom’s challenges. In 2008, Eskom had R40 billion debt. Today, the utility is R419bn in the red.
However, R300bn of that debt was borrowed to build Kusile and Medupi power stations.
In 1998, the government was told by Eskom to build power stations because at the rate the economy was growing, the existing grids would not be able to cope. As admitted by then president Thabo Mbeki when the country experienced load shedding for the first time in 2008, the government did not heed Eskom’s call. Twelve years later, the utility began to build Kusile and Medupi.
How did a task that was supposed to have been done by the government through injecting new capital expenditure end up in Eskom’s balance sheets?
The utility should have borrowed money and built the plants. That R300bn to build power plants was supposed to come from the shareholder as new capital and not be a debt burden to Eskom.
It’s mischievous for Finance Minister Tito Mboweni to say that Eskom made the debt so Eskom must pay the debt.
This R300bn debt should be moved from Eskom’s balance sheets to the government books. This will leave Eskom with only R100bn in debt. It also means the utility would be freed from paying the R40bn debt servicing expense, leaving it with enough money to buy coal, diesel and maintain the plants.
According to Eskom’s financial statements ending March 2018, the state-owned entity (SOE) had R19.6bn in irregular spending since 2012. “Eskom had 10 CEOs in 10 years and six boards in 10 years.”
The political interference and the deployment of corrupt officials allowed for the leadership instability and looting.
With the new leadership of President Cyril Ramaphosa, a new board and chief executive, that corruption tap has been closed.
Unbundling is not the cure. Eskom has not taken advantage of its size, the economies of scale, which would have helped it negotiate better prices from its supplies of coal, diesel, and other inputs.
The ANC policy conference concluded that SOEs are one of the strategic levers available to the state for transformation. Eskom’s shareholders have a responsibility to the people of this country, and must not shirk on that responsibility.